Unemployment Dynamics in Emerging Countries: Monetary Policy and External Shocks
42 Pages Posted: 13 Nov 2017 Last revised: 19 Feb 2019
Date Written: July 2, 2018
This paper quantifies the impact of three key external shocks -- external demand, interest rate, and uncertainty shocks -- on emerging market economies (EMEs). We find that external shocks have a sizeable impact on macroeconomic fluctuations in EMEs and that a considerable fraction of this impact is through the domestic stock market. A decrease in external demand and an increase in external interest rate and uncertainty lead to a higher unemployment rate, lower stock market return, and a depreciation of the domestic currency. The EMEs' monetary policy actively responds to external shocks and dampens their impact on domestic activity.
Keywords: Unemployment Dynamics; Monetary Policy; External Shocks; Emerging Markets
JEL Classification: E24; E52; F41
Suggested Citation: Suggested Citation